Destabilizing Commodity Market Speculation

We show that under quantity competition with only a few strategic sellers and a large number of small price-taking consumers/retailers, a speculator with a deep pocket and access to sufficient storage facility can have a destabilizing effect on commodity prices. The speculator can profit by lowering the price of when buying and raising the price when selling commodity contracts, thereby increasing the commodity price volatility. There is no information asymmetry or private information in our model. Also, we do not consider any explicit coordination among these strategic sellers and/or the speculator. While possible, our results also suggest that destabilizing speculation may be difficult to sustain.